“Our member firms share the concern expressed by many observers and market participants about the problems affecting Knight Capital and the disruptions these problems caused in the U.S. equity markets. Rapid advances in trading technology have brought very substantial benefits for those who use and rely on markets, but there is no question that they also have introduced new sources of risk.

Over the last several years, FIA PTG and FIA ETPA have devoted considerable time and effort to improving risk controls and establishing best practices to prevent market disruptions and strengthen market resiliency. We have issued several reports with specific recommendations for trading firms, brokers and exchanges, and we have worked with regulators and legislators in the U.S. and the EU to implement meaningful and effective reforms.

Earlier this year, the FIA PTG and FIA EPTA issued a paper that recommended a number of specific tests and controls that trading firms should consider whenever they change their technology systems. Technology is a core component of modern markets, and we strongly believe that managing technological change must be an essential element of risk management for all market participants. The recommendations draw on the extensive experience that our member firms have in the field of electronic trading and are designed to provide a framework that all trading firms can use to mitigate risk across the entire software life cycle.

It is not clear yet what caused the problems at Knight Capital, but once the facts are out, we will review our recommendations and amend if needed. Knight’s difficulties highlight how quickly the market punishes trading mistakes, but also how important it is for market participants to work with regulators to minimize threats to market stability. We stand ready to share our expertise with regulators as they examine what happened at Knight Capital and consider what reforms are necessary to safeguard our markets.”[3]

In November 2010, PTG published a white paper entitled Recommendations for Risk Controls for Trading Firms. The paper highlights its recommended policies and procedures for trading operations and electronic trading systems in such areas as: